Traditional retail merchandising involves establishing a storefront in an appropriate commercial district, hiring and training a knowledgeable sales staff to handle consumer inquiries regarding products for sale, and maintaining regular business hours during which consumers may visit the storefront, review items for sale, and discuss those items with a salesperson. The merchant typically makes sales to consumers out of the inventory available at the store, and replenishes inventory as it becomes depleted through sales.
In some environments, a merchant will take catalog orders from consumers, in which case the merchant orders the desired item from a wholesaler or manufacturer. This is often done to free sales staff to handle all of the available customers. When a catalog order is made, the item is delivered to the merchant, and the consumer returns to the storefront to take delivery. Independent merchants often discourage catalog shopping because purchases through catalogs by definition will create a backorder for the merchant, requiring the administrative overhead of tracking the backorder and contacting the customer upon delivery to complete the sale, which is burdensome as compared to directly selling from existing inventory. Furthermore, particularly in those markets where customers are time-sensitive (such as fine jewelry, where many customers are shopping for gifts that must be obtained by a specified date), the uncertain nature of the delivery date of catalog orders makes the use of catalogs undesirable.
This traditional process for selling at retail involves substantial overhead costs in a number of areas. Maintaining a commercial storefront in an attractive commercial district involves monthly rent expense. Hiring and training sales staff to wait on consumers involves labor expense. The fixed cost of inventory also represents an interest expense. These overhead costs are directly reflected in the retail prices that are charged to consumers for products sold in the store.
The recent availability of Internet access to a large number of consumers, has spurned the use of the Internet as a commercial medium for directly selling products to consumers. This use of the Internet is popularly known as electronic commerce or e-commerce.
E-commerce merchants have several significant cost advantages as compared to traditional retailers, and as a result e-commerce retail merchants often can undercut the prices of traditional retail merchants. E-commerce merchants do not need to maintain a storefront in an attractive commercial district; rather, all that is required is a computer system connected to the Internet, which can be at any physical location that is desired, including a private home. In addition, e-commerce merchants have the advantage that, in many circumstances, sales taxes applicable to traditional merchants need not be collected by an e-commerce merchant due to the interstate nature of a transaction and/or tax moratoriums that have been initiated to stimulate the development of e-commerce. This also makes the retail price of an e-commerce merchant appear lower to consumers.
Traditional merchants have attempted to confront the threats posed by e-commerce by also connecting to the Internet. For example, several larger merchant chains have established Internet sites at which consumers can browse and compare available merchandise, much as is done at a retail store. To date, however, only the largest retail merchants, typically chains of large stores, have undertaken the task of creating such a system. There are several reasons for this. First, substantial programming expense is currently required to create a comprehensive Internet server application for marketing products. Smaller merchants cannot amortize this cost over a large quantity of products sold. Furthermore, smaller merchants of necessity have a smaller inventory than the combined inventory of the stores in a large retail chain, and so have difficulty matching on a product-for-product basis, the offerings of larger e-commerce merchants. Finally, the business model used by many traditional independent merchants assumes that shoppers will make purchases from existing inventory, for the reason that existing inventory is all that is available for review at the retail site. In an e-commerce environment, however, consumers viewing lists of items for sale identified on-line, will be able to submit purchase requests for items that may not be in inventory at the time of the purchase. This requires the merchant to have the organizational arrangements in place to handle and track a substantial number of backorders, which large chain stores often already have in place, but independent merchants lack.
The efforts by traditional merchants to combat e-commerce, to a large extent assume that consumers use the Internet for information gathering, and will make purchases from retail outlets at essentially retail prices. A traditional retail merchant cannot charge different pricing for sales using the Internet, than for sales from its retail store, without undermining the investments the merchant has made in its own retail presence. Indeed, some merchants that have an Internet presence, still require a consumer to visit a retail site to make purchases, apparently to ensure that retail traffic will pass through the retail store, ensuring awareness of consumers to the location of the retail store and the products it carries.
A problem with this model of consumer behavior is that it assumes that consumers will be compelled to purchase goods from those parties that provided information on the goods. Although this was true in the traditional retail environment, where consumers cannot readily move from one merchant to another merely for the purpose of price shopping, in e-commerce, this is not the case. Users do not always expect e-commerce merchants to have an available knowledgeable sales staff ready to answer consumer questions. Indeed, consumers often expect no more than to be able to connect to the e-commerce merchant's server and place orders for shipment to the consumer. A savvy e-commerce consumer collects information on products from whatever sources are available, and then makes the purchase from the merchant with the lowest price. There are now Internet services having the sole function of finding the lowest price for a given product, which facilitates this approach.
In those markets where products are well known to consumers and relatively readily compared, consumers will not need to have substantial information to make retail purchases. However, in some retail markets, consumers require substantial product information before reaching a purchase decision. Two examples of this kind of retail market are the consumer electronics and fine jewelry markets. In both markets, consumers are relatively unfamiliar with particular products and their relative value and merits, and must collect information to reach a particular purchase decision.
In those retail markets that are dominated by branded merchandise, for example, the consumer electronics market, and the market for watches, consumers can readily obtain product information. Manufacturers desiring to enhance sales provide detailed information on their products in printed materials and on Internet-accessible servers, allowing consumers to collect information on products independently of particular merchants. When collecting information on branded merchandise, e-commerce consumers can also take advantage of traditional retail merchants, by visiting merchants to view products and collect product information from knowledgeable sales staff, so that an informed purchase of the desired brand and model can later be made from the e-commerce merchant with the lowest pricing.
Manufacturers of brand-name merchandise selling to retail markets dominated by brand names, are aware of the likelihood for price-shopping by consumers, particularly using e-commerce. Manufacturers often wish to discourage such price shopping, for several reasons. Manufacturers of premium brand products wish to maintain high retail price levels to preserve the premium nature of the brand. Furthermore, manufacturers of brand products want to ensure that traditional merchants will carry their merchandise and exert efforts to sell it (whether through their own stores or, unwittingly, through competitors); the best way to do this is to ensure that merchants will make attractive profit margins on sales of those products. To meet these goals, manufacturers have in the past instituted retail price maintenance policies, such as refusing to sell to merchants that sell below a manufacturer-mandated minimum price, or limiting distribution to limited numbers of merchants in particular territories. To combat price erosion due to e-commerce, some manufacturers have instituted a policy of refusing to sell to merchant that make retail sales via the Internet. Although manufacturer policies of this sort are detrimental to e-commerce, manufacturers are not philosophically opposed to e-commerce. Manufacturers would welcome the additional sales volume that might arise through e-commerce, if the manufacturer could monitor retail pricing to enforce existing policies, and thus be sure not to undermine traditional retail merchants. Traditional merchants, particularly those lacking the resources to begin e-commerce, are opposed to brands that permit other merchants to sell via the Internet, and the risk of alienating these merchants has caused many manufacturers to continue to maintain policies prohibiting Internet sales.
There are some markets that are not dominated by brand merchandise. One example is the market for fine jewelry (with the exception of watches), in which manufacturer brand names, while known to merchants, are relatively unknown to customers. In these markets, e-commerce faces substantial challenges. Although consumers have shown a willingness to buy brand-name merchandise via the Internet, even from completely unknown merchants, this willingness is based on familiarity with the manufacturer and its brand names, and assumed control that the manufacturer has over its product distribution. Unbranded merchandise, however, does not benefit from brand-name familiarity, making consumers substantially more wary, and largely unwilling to purchase unbranded merchandise from unknown merchants. Unbranded merchandise, therefore, can only be effectively sold via the Internet by national, well known merchants, as such organizations can use their reputation as a substitute for brand recognition.
The merchants that bear the greatest business risk of losing business due to e-commerce, are the traditional independent single location retail merchants. The risk is particularly high to those merchants that deal in retail markets that lack strong brand names, such as traditional single location fine jewelry stores; these stores are unlikely to be protected by manufacturers via price minimums and Internet sales prohibitions, and these stores lack the resources and inventory necessary to commence e-commerce and compete on an item-to-item basis with national chains. Furthermore, even those independent merchants dealing in brand name dominated industries, will eventually lose the protections imposed by manufacturers and begin to lose sales to e-commerce competitors.
It is therefore an object of the present invention to facilitate the rapid entry of small, independent merchants into e-commerce, providing those merchants with an inventory and a nationwide reputation that can be competitive with much larger merchants. It is a further object to protect such merchants from erosion of their retail pricing resulting from competition between their respective e-commerce businesses.
It is another object of the present invention to facilitate e-commerce sale of goods by merchants, in a manner that induces manufacturers to allow their goods to be sold via e-commerce, by protecting manufacturers and retail merchants from the effects of price erosion.
It is a further object of the present invention to facilitate catalog sales by merchants at retail locations, by improving the delivery of catalog information to consumers visiting retail locations, while minimizing the administrative burden to merchants associated with tracking backorders, with no greater expense to merchants than is incurred through the use of traditional printed catalogs.
It is another object of the present invention to manage a catalog of items for sale via e-commerce in a manner that minimizes administrative burden on merchants using the system.